Question 60

Company ABC starts an educational program in collaboration with Institute XYZ. As per the agreement, ABC and XYZ will share profit in 60 : 40 ratio. The initial investment of Rs.100,000 on infrastructure is borne entirely by ABC whereas the running cost of Rs. 400 per student is borne by XYZ. If each student pays Rs. 2000 for the program find the minimum number of students required to make the program profitable, assuming ABC wants to recover its investment in the very first year and the program has no seat limits.

Solution

XYZ running cost = Rs 400/student

Each student pays Rs 2000

Profit = 2000 - 400 = 1600

ABC receives 60% of profit, i.e. 1600*0.6 = Rs 960

XYZ begins to make profit from first student itself.

For ABC to recover its investment, number of students should be 100000/960 = 104.16

Therefore, partnership needs at least 105 students to reach break even point.

The answer is option C.

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